President-elect Donald Trump ran for office on an isolationist and trade protection policy that directly focused on what he perceived as Chinese economic threats. Trump spoke on currency manipulation, uneven trade agreements and a waning US economy that he believed needed a reconstructed relationship.

Whether these threats are real or not, Trump could be walking into the White House with a true economic crisis on his hands. The potential for significant changes in US-Chinese economic relations could impact you. From the value of the US dollar to the price of goods at your local supermarket.

While many discussions will rightfully swirl on domestic issues, perhaps none are as concerning as a potential economic fall-out between the US and China.

It is clear that Asian markets and currency values are shaken in the surprise victory of the Trump campaign.

As the chart below features, Asian currency values have dropped to a seven-year low while the US dollar has risen. A strong US dollar might seem like good news. For one, it means greater purchasing power, a stronger exchange rate abroad.

However, a strong dollar is bad for US exporters because it makes US goods more expensive in international markets. The technology and energy sectors are typically the first to be hit under a strong dollar because they cannot sell their goods. Think Apple or Exxon – two of the strongest US companies, being unable to move their products. Instances like these would have a long term negative impact on the global economy.

Lilian Karunungan wrote inBloomberg“Emerging assets have tumbled in the past week as the president-elect is seen unleashing a spending surge, pushing the Federal Reserve to raise interest rates.” Translation: Asia is watching the west, and so far it has not reacted well to the unfolding news and potential monetary policy to come.

Trade War and China

During a phone conversation less than a week after Trump’s election win, China’s President Xi Jinping said on the call that cooperation is the “only correct choice” for the two countries going forward.

That leaves Trump’s positioning of policy directly in the line of fire for China’s economic model. It is important to recall that has intentionally made the value of the yuan lower than it perhaps should be. While this might be seen as a manipulation in currency, and therefore trade, it opens up deserved areas of trade negotiation and further discussion.

Jim Rickardswhile onFox Business Networkspoke on Trump’s trade policies he stated that, “Both sides are tough negotiators. These are opening bids. I have never understood Trump’s tariff policies being where he wanted to end up. This is where he starts the negotiation. This is the “art of the deal.” The problem with a trade war between the US and China… both sides lose.”

Rickards spoke on the currency manipulation stemming from China saying, “Most of 2015 they were propping up their currency. They had been playing nice with the International Monetary Fund (IMF) so they could get into the special drawing rights (SDR) – or the new world money system.”

Tariffs and Trump

In January 2016, Trump addressed aneditorial review boardwhere he proposed a 45 percent tariff on Chinese exports. Trump has since backed away from this proposal, but the warning was clear (even if it would violate the US obligations under the WTO).

While tariffs may look attractive in principle, China is predicted to overtake Canada as the United States’ largest trading partner. Overall, its manufacturing industries allow American consumers to have cheaper products ranging from appliances to clothing.

A sudden spike in those costs could negatively impact American spending and the overall economy of Main Street. It could cause investors to seek stocks that do not rely on exports – which could lead to a major loss in exporter stocks. Trump may have only played up protectionist rhetoric, the impact on the total trade psyche could have an immediate impact on the economic conditions he walks into following the inauguration.

As the former GOP presidential candidate Trump told theNew York Times, “The only power that we have with China, is massive trade.”

While speaking in China earlier this yearDavid Lipton, First Deputy Managing Director of the IMF did not mince words. Lipton said to theChinese Economists Societythat he was very alarmed by the total corporate debt noting that it was “about 145 percent of GDP, which is very high by any measure.”

In a statement reminiscent of seeing the writing on the walls, Litpon warned, “we have learned over and over in the past 20 years how disruptions in one country’s economy and markets can reverberate worldwide…”

The potential of greater tariff threats could trigger exactly the warnings the the number two guy at the IMF is warning of. It could shake the already uneasy balancing of the Chinese economy, and have massive global ripple effects.

While it might be a possibility to find a replacement to China’s production, it is not possible to replace their consumers. Insmartphone sales and consumptionalone, a major driver of consumer spending, China has more users than US, Brazil, and Indonesia all combined.

Focusing on smartphone sales out of China might only paint a small picture, but it shows that any “tit-for-tat” reactions between the global superpowers could have highly detrimental impacts. For an example of this look to Apple. The major tech company had iPhone sales last quarter hit $18.4 billion,the largest in US history. As of last year, iPhone sales in China even topped domestic sales in the US.

A growing divide between the US and China is not simply one of diplomatic and military bolstering, it directly impacts the private sector and trade flows. While Apple might be an obvious bystander in trade and currency war escalation, the global economy could be the ultimate loser.

In 1996, Thomas Friedman notoriously wrote hisGolden Arches Theorywhere“no two countries that both have a McDonald’s have ever fought a war against each other.” He might need to update his flawed theory again to include iPhones and major trading partners.

This economic saber rattling could not come at a worse time for China. The officialforeign exchange reservesin the country dropped more than half a trillion dollars last year alone and continue to fall, reporting in October alone a loss of $46 billion. Capital is fleeting and flying from mainland China and not likely to stop anytime in the near future.

As Nomi Prins wrote onAsia and the Chinese economyprior to the US election, “Old fights might be discarded if economic or financial survival is imperiled, which is what these sharper market moves foreshadow.” The former Wall Street managing director wrote on a China rising even further in the global economy, but now that possible conflicts in trade and the increased risk of crisis has escalated – markets might be left to fight for market survival.

The Chinese yuan today has hit its lowest level in almost eight years. The People’s Bank of China (the central bank of China) has allowed the yuan to weaken for the past eight days in a row. This all comes in the wake of the US election, expectations of a Fed interest rate hike and surging housing prices in mainland China.

While some might see a weakening Chinese economy as a great opportunity for the US to use to their advantage, it would be a fool’s errand. The incoming president-elect would be wise to monitor closely his approach to China. It will impact us all.

The Trump administration could have its first major test with China. Having a well developed Chinese policy will be critical – especially in the wake of a looming economic crisis.

This story originally appeared in the Daily Reckoning . The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.